The meaning of exchange of contracts

The exchange of contracts is known to be one of the most important and one of the last steps of the conveyancing transactions. This is where the contracts that are signed by the sellers and buyers are exchanged between the solicitors usually via phone, it is also the point of the transaction where the buyer will be required to transfer the deposit monies over to the solicitors (usually 10% of the purchase price), if necessary. In some cases, the seller’s solicitors will agree to exchange contracts on NIL deposit meaning that no deposit is required to be transferred to the buyer’s solicitors in readiness for exchange.

The exchange of contracts will not take place until the buyer’s solicitors have carried out all the necessary and vital checks including property searches, source of funds checks, title checks and have all the signed paperwork returned by the buyer. Under Section 2 of the Law of Property Miscellaneous Provisions Act 1989 states that the agreement must be in writing, if the buyer and seller sign their own version then each document must contain all of the same agreed terms or else it will be void. Since effect of the Covid-19, some solicitors have made some changes to allow clients sign paperwork electronically.

Furthermore, the exchange and completion dates will be required to be agreed between all the parties before solicitors are able to proceed with exchange of contracts. The solicitors will not be able to exchange contracts without having a completion date agreed as this is written into the contract at a point of exchange. Once the dates have been agreed and the buyer’s solicitors are in receipt of the deposit monies, they will then contact you to obtain your authorities and will proceed with exchange of contracts; this can take place at any time of the day.

Once the contracts have exchanged, the buyer’s solicitors will then transfer the deposit monies to the seller’s solicitors (unless it is agreed to be ‘held to order) who will hold the monies in a client account until completion and you will be notified as soon as the exchange of contracts have taken place.

The sellers and the buyers can withdraw from the transaction at any time during the transaction as long as the contracts have not exchanged as neither party have a legal obligation to complete in England and Wales. However, once the contracts have exchanged, this becomes legally binding between the seller and the buyer meaning that no parties can withdraw from the transaction as both parties are legally committed to the transaction, or they will have to face a serious legal or financial penalty. By withdrawing from the transaction after the contracts have exchanged, it will suggest that the party is in breach of the terms in the contract; the penalties could include losing deposit monies, having to pay solicitors and third parties fees even if the transaction does not proceed to completion as well as pay interest to the other party in the contract. The risk of either the seller or the buyer withdrawing from the transaction is very low once the contracts have exchanged. 

You can contact our Conveyancing team here or call on 01604 936512 / 01908 953674 or email info@franklins-sols.co.uk.